topic Re: Basic HELOC information needed in Mortgage Loans

Basic HELOC information needed

SoCalGardener — Thu, 16 Jun 2022 17:04:42 GMT

I've sworn up and down that I would never, as in NEVER EVER get any kind of loan that put a lien on my house. I own it outright and don't ever want to jeopardize my security. But, recently, input from other members made me start wondering: would it really be that bad? And after receiving yet another mailing from Figure--with their claims of being the #1 HELOC provider--I thought I'd ask some questions.

Here's the story: I've recently racked up a good deal of CC debt. All of it was part of a home remodeling project; I paid the vast majority of the charges in cash, but ended up with about $40,000 on CCs. Each card that I used had some kind of offer that made my CURRENT interest 0%. I figured with ending dates ranging from months to years, I could deal with the debt gradually, or even tap into [my very depleted] savings and pay it all off. A near-fatal illness and its associated six month hospital stay a few years ago drained more than $100,000 from my savings. I'm at a point now where I'd rather not touch what's left in the bank if at all possible. So my questions are...

1) Say that I wanted $50,000. I would immediately use all of it to pay off my CC debt and have some money left to put in the bank. Is there such a thing as a 36-month or 48-month HELOC? Or are they all 10, 15, 20, 30 YEARS?

2) Assuming they're 15 years at the very least, what happens if I pay it off in 3 years or 4 years? That's what I want to do.

3) If I died before it was paid off, and my estate/daughter pays off its balance, there's no issue with her inheriting my house, right? There's no possible way this loan could interfere with her inheritance?

I want to use it as a normal loan, i.e., taking the funds and immediately using them; I do not want to leave it sitting there and take draws occasionally. I just want to use it, pay it off, be done with it. Is this doable?

Some DPs: I could easily sell my house for almost $2M, but Figure's valuation is a lot lower than that, only about $1.3M. Until racking up all this CC debt, my scores were in the 820s; now they're in the mid-700s. I have a perfect payment history, no baddies of any kind, nothing derogatory, no late payments, and well over $100,000 in TCL. My AAoA is <8 years.

All advice, input and thoughts gratefully accepted!

Re: Basic HELOC information needed

ShanetheMortgageMan — Thu, 16 Jun 2022 19:14:34 GMT

HELOC loan terms are usually 15-30 years. No restrictions on how soon you can pay it off, you can pay off the loan balance 1 day after taking it out if you wish. HELOC's usually have an early closure fee though if you close the HELOC within the first 3 years (essentially the fees they didn't charge you when you obtained the HELOC), each lender will have a different policy regarding that. To avoid that, just keep the HELOC open. You'll want to speak with an estate attorney regarding your inheritance question, but my understanding is your daughter would inherit the home plus any debt that is using it as collateral... usually if the debt continues to be paid as agreed then they won't accelerate the debt payoff.

I want to use it as a normal loan, i.e., taking the funds and immediately using them; I do not want to leave it sitting there and take draws occasionally. I just want to use it, pay it off, be done with it. Is this doable?

Yup, that's not a problem.

Re: Basic HELOC information needed

zerofire — Fri, 17 Jun 2022 00:15:55 GMT

First and foremost you need to understand what a HELOC is. A HELOC is short for Home Equity Line of Credit, basicly a secured credit card but to your house. They attach to the building like any other mortgage. They will remain attached until you close them. You can pay it off and hold it at $0 balance if you like. If you miss a payment they can call your house as an asset in exchange via forclosure. The one thing they do not like doing is handing you cash. They will cut checks for contractors or let you swipe your HELOC's card as payment but do not expect to be able to get funds into your savings account. Also Figure is just using fancy marketing to suck you in. What you truly need to do is consider the actual product. As for the building valuation it is always done quick for a HELOC and will always be more conservative than what you might be able to sell for on any mortgage. 1.3mil on a 2mil building is about right and they will not let you access all of the funds in the house.

Your questions answered:

A HELOC is a mortgage that gets accessed like a credit card. The terms might be 10-30yr but if you look closer there will never be a prepayment penalty. You do not need to keep a balance for the full length of term. I had a building with a HELOC attached for years but balance at $0.
You pay it off early. The balance becomes $0 and it will be up to you when you want to close it. You can let it sit until your next emergency if you like.
That depends. Is the HELOC paid off only or all of your debts? While HELOC's are a mortgage and can forclose on a house as a secured lender they are not the only one that can. After all secured lenders have grabed their security and cleared their debt any unsecured lender comes in and grabs their piece of your estate. The unsecured lenders can then order the home liquidated. Does not matter if it is thousands to Discover, Citi, or just $90 to the cable co. Heirs like your daughter get the house dead last. The exception is if you do something that qualifies the asset to bypass the estate. If the asset bypasses then only secured lenders that attach directly to it can grab it.

What you want is mostly doable be aware that a HELOC still has a percentage on it, even if low, and read carefully the fees. The early closure fees have a habit of stinging if your not careful.

Re: Basic HELOC information needed

TheKid2 — Fri, 17 Jun 2022 03:16:47 GMT

The conventional thinking on HELOCs is that you should apply for more than you need because it will be there when/if you need it. Typically you get a 10 year draw period (variable rate) and then a 20 year repayment period (fixed rate). You're making interest only payments until you get into repayment, but you can always pay more towards principal. Most banks will give you an option to lock into a fixed rate sooner, but you're closing the draw. There's no "penalty" for not using the credit line, but I've seen terms where you have to pay a certain amount in interest or you will be charged a fee yearly. I'm looking at CUs and I would essentially get a checkbook and online access to transfer funds into my primary checking account.

You should shop around and even consider just doing a straight up equity loan on a fixed rate. That works better if you have a one time set amount in mind and just want to pay it off over time. Rates will be better, especially if you look at reduced terms like 15 years.

Re: Basic HELOC information needed

Kasuito39 — Fri, 17 Jun 2022 13:14:00 GMT

For Heloc products, CU's usually have better products than fintech like Figure Lending. Furthermore, you can always leverage other CU's loan products like PLOC, HEL, HELOC, BLOC or Personal loans. Below are a dozen CU's that come to mind but i'm sure there hundreds more others can share.

1. Signature FCU

2. State Department FCU

3. Andrews FCU

4. Penfed FCU

5. Quorum FCU

6. Alliant FCU

7. Kinetca FCU

8. Langley FCU

9. Bethpage FCU

10. NIH FCU

11. Unify FCU

12. AmericaFirst FCU

Good luck.

Re: Basic HELOC information needed

DSTforlife — Fri, 17 Jun 2022 14:16:07 GMT

Hi SoCal,

I was following the other thread where HELOCs were discussed/debated.

Everyone has given great information. I just want to add that there's a difference between a HEL and an HELOC. HEL is a loan that does not revolve (once you pay it off, you can't reuse it), and a HELOC revolves.

One of the downsides to HELOC is the variable interest rates. However, there are some banks that have a hybrid type HELOC where you can lock in a portion of the balance.

I recently closed on a HELOC to complete home renovations. Some people are against taking out a loan against your home (other than a first mortgage), which is valid. However, my thought is that it's an extension of my mortgage because I'm doing something that will increase the value of my home. So, i'm taking out equity in my home as an investment. And, I'm in a position where I can throw big chunks of money at the balance annually, so as not to carry the balance for a long period of time. and the gravy in all of this is if I ever decide to do anything else, I am able to use the revolving line.

Good luck with your decision!

Re: Basic HELOC information needed

badgerdog — Fri, 17 Jun 2022 18:30:50 GMT

Questions you should ask.

1. Who services loan. My CU said they service loan. Not true although they monitor controled by Cenlar a CA which they have no say how they

run their operation. They can ask them to make adjustments.

2. Make sure your device can open document. I use Safari not compatable with Cenlar documents.

3. Ajustable or fixed rate. Ajustable they pay closing with 3yr lock before it can be payed off without penelty. Fixed rate you pay closing cost.

Ajustable rate during these times can get expensive just paying interest only. My penalty 1yr $3000, 2nd yr $2000.00 and 3yr $1000.00.

Now I will pay it way down before the end month as I hate interest increases but I have not debt I can't pay off. But a small balance and auto pay and be done with it other than I will keep available for the duration of agreement. Never know when a little money needed for a excellent

buy comes along. Just my recent experiance

Hope it works out for you.

Re: Basic HELOC information needed

SoCalGardener — Fri, 17 Jun 2022 18:36:50 GMT

@zerofire wrote:
First and foremost you need to understand what a HELOC is. A HELOC is short for Home Equity Line of Credit, basicly a secured credit card but to your house. They attach to the building like any other mortgage. They will remain attached until you close them. You can pay it off and hold it at $0 balance if you like. If you miss a payment they can call your house as an asset in exchange via forclosure. The one thing they do not like doing is handing you cash. They will cut checks for contractors or let you swipe your HELOC's card as payment but do not expect to be able to get funds into your savings account. Also Figure is just using fancy marketing to suck you in. What you truly need to do is consider the actual product. As for the building valuation it is always done quick for a HELOC and will always be more conservative than what you might be able to sell for on any mortgage. 1.3mil on a 2mil building is about right and they will not let you access all of the funds in the house.
Your questions answered:
A HELOC is a mortgage that gets accessed like a credit card. The terms might be 10-30yr but if you look closer there will never be a prepayment penalty. You do not need to keep a balance for the full length of term. I had a building with a HELOC attached for years but balance at $0.
You pay it off early. The balance becomes $0 and it will be up to you when you want to close it. You can let it sit until your next emergency if you like.
That depends. Is the HELOC paid off only or all of your debts? While HELOC's are a mortgage and can forclose on a house as a secured lender they are not the only one that can. After all secured lenders have grabed their security and cleared their debt any unsecured lender comes in and grabs their piece of your estate. The unsecured lenders can then order the home liquidated. Does not matter if it is thousands to Discover, Citi, or just $90 to the cable co. Heirs like your daughter get the house dead last. The exception is if you do something that qualifies the asset to bypass the estate. If the asset bypasses then only secured lenders that attach directly to it can grab it.
What you want is mostly doable be aware that a HELOC still has a percentage on it, even if low, and read carefully the fees. The early closure fees have a habit of stinging if your not careful.

Thank you very much for your thoughtful response. Great info!

As for debt, right now my total debt is <$50,000. Since I have no mortgage, car loan, or any other kind of secured loan, my debt is all unsecured. My will and trust provide for all debts to be paid after my death; there will be nothing/no one that can claim any portion of the house--unless I get some variety of home equity loan.

I'm fuzzy right now on the details, but because of Prop 13 and its parent-to-child transfer of property, probate is avoided and some other things, too, I think. I'm not sure how that factors in here, if at all.

When my mom died, her only debt was <$10,000 on her Discover card, a card she always PIF and I did the same after informing Discover of her death, and telling them to send me the final bill. (Long story told many times, I acquired that card! Didn't even know they could do that. But they transferred it to my name, keeping its original 1991 open date and perfect history. ) That was that. I mean that's pretty much all that was involved with wrapping up her estate. Our estate attorney handled all the property transfer stuff, I signed a few documents, and the deed to the house arrived in the mail one day not long after. I hope to keep it that simple for my daughter.

Re: Basic HELOC information needed

SoCalGardener — Fri, 17 Jun 2022 18:50:00 GMT

@DSTforlife wrote:
Hi SoCal,

I was following the other thread where HELOCs were discussed/debated.

Everyone has given great information. I just want to add that there's a difference between a HEL and an HELOC. HEL is a loan that does not revolve (once you pay it off, you can't reuse it), and a HELOC revolves.

One of the downsides to HELOC is the variable interest rates. However, there are some banks that have a hybrid type HELOC where you can lock in a portion of the balance.

I recently closed on a HELOC to complete home renovations. Some people are against taking out a loan against your home (other than a first mortgage), which is valid. However, my thought is that it's an extension of my mortgage because I'm doing something that will increase the value of my home. So, i'm taking out equity in my home as an investment. And, I'm in a position where I can throw big chunks of money at the balance annually, so as not to carry the balance for a long period of time. and the gravy in all of this is if I ever decide to do anything else, I am able to use the revolving line.

Good luck with your decision!

Yes, that other thread was very instrumental in creating this one!

Thanks for your input here. It's good information and I appreciate it.

One thing I want to point out is that the conventional thinking about doing things to 'increase the value' of one's home doesn't apply to me. That's because my house is the kind that gets torn down IMMEDIATELY after the deed transfers to the new owner. One other time I got my hand slapped for stating the FACT (which is easily verified anywhere online--just look up property purchases in Arcadia, CA) that people from a certain country buy up regular houses like mine, then raze the entire property--I mean everything! from trees to buildings; the only thing they're required to leave is protected trees and wildlife.

Anyway, their real estate agents here make unsolicited offers to buy my house ALL THE TIME; they start their spiel with 'my client in [country redacted so I won't get my hand slapped again] is very interested in buying your home...' and that's where I interrupt. I say, 'you mean my PROPERTY, right?' And I go on to say 'you know as well as I do they're going to tear it down and put up a gigantic McMansion in its place.' My point? There is no such thing as increasing my home's value. Any changes made, whether adding a room or remodeling the kitchen, none of it matters! All they want is the land.

I've stipulated in my trust that my daughter cannot sell except under extraordinary circumstances, with examples given. My estate attorney convinced me to change the original verbiage which prevented her from selling EVER; he pointed out that something unforeseen could happen, like the neighborhood turning into a slum. And he said we wouldn't want to trap her in something like that.

Re: Basic HELOC information needed

TheKid2 — Fri, 17 Jun 2022 19:12:26 GMT

@SoCalGardener wrote:
@DSTforlife wrote:
Hi SoCal,

I was following the other thread where HELOCs were discussed/debated.

Everyone has given great information. I just want to add that there's a difference between a HEL and an HELOC. HEL is a loan that does not revolve (once you pay it off, you can't reuse it), and a HELOC revolves.

One of the downsides to HELOC is the variable interest rates. However, there are some banks that have a hybrid type HELOC where you can lock in a portion of the balance.

I recently closed on a HELOC to complete home renovations. Some people are against taking out a loan against your home (other than a first mortgage), which is valid. However, my thought is that it's an extension of my mortgage because I'm doing something that will increase the value of my home. So, i'm taking out equity in my home as an investment. And, I'm in a position where I can throw big chunks of money at the balance annually, so as not to carry the balance for a long period of time. and the gravy in all of this is if I ever decide to do anything else, I am able to use the revolving line.

Good luck with your decision!

Yes, that other thread was very instrumental in creating this one!

Thanks for your input here. It's good information and I appreciate it.

One thing I want to point out is that the conventional thinking about doing things to 'increase the value' of one's home doesn't apply to me. That's because my house is the kind that gets torn down IMMEDIATELY after the deed transfers to the new owner. One other time I got my hand slapped for stating the FACT (which is easily verified anywhere online--just look up property purchases in Arcadia, CA) that people from a certain country buy up regular houses like mine, then raze the entire property--I mean everything! from trees to buildings; the only thing they're required to leave is protected trees and wildlife.

Anyway, their real estate agents here make unsolicited offers to buy my house ALL THE TIME; they start their spiel with 'my client in [country redacted so I won't get my hand slapped again] is very interested in buying your home...' and that's where I interrupt. I say, 'you mean my PROPERTY, right?' And I go on to say 'you know as well as I do they're going to tear it down and put up a gigantic McMansion in its place.' My point? There is no such thing as increasing my home's value. Any changes made, whether adding a room or remodeling the kitchen, none of it matters! All they want is the land.

I've stipulated in my trust that my daughter cannot sell except under extraordinary circumstances, with examples given. My estate attorney convinced me to change the original verbiage which prevented her from selling EVER; he pointed out that something unforeseen could happen, like the neighborhood turning into a slum. And he said we wouldn't want to trap her in something like that.

Location, location, LOCATION!

I'm with @DSTforlife and would use it to improve my home, but that's not the only reason it could make sense.

The HELOC could work in your circumstance where you use the funds for a debt consolidation or even buying a vacation property. It gives you lots of flexibility.

Re: Basic HELOC information needed

zerofire — Fri, 17 Jun 2022 19:57:59 GMT

I believe you mean 1986 Prop 58 and it's extension 1996 Prop 193. It only allows transfer of a home to a grandchild without a tax reevaluation. 1978 Prop 13 only restricted how much ad valorum tax is allowed on a property and set 2/3 majority vote for special tax. Overall taxes ended up plummeting. Regardless none of the props listed allows the bypass of the estate. You just lucked out that your family was not very indebted and had more assets than debts. Also most of the hard part was done via an attorney. There are however ways to transfer assets without going via estate and if planned properly do not even need an attorney, probate, or anything fancy.